Senate Republicans predict tax plan dead on arrival

JUNEAU (AP) -- Senate leaders left little doubt on Friday that a House plan to close a budget deficit with new taxes and Alaska Permanent Fund earnings was dead on arrival.

Senate President Rick Halford, R-Chugiak, said the $250 million income tax plan and use of permanent fund earnings are the wrong proposals at the wrong time.

''The bottom line is those two together are probably the last two proposals we would consider,'' Halford said.

Halford said lawmakers face a ''watershed election'' in which all but three in the Legislature must face re-election, giving voters the chance to react to the two plans.

The Republican-controlled House has been emerced in a contentious four months of negotiations with Democrats and the moderate wing of the GOP to craft a fix for the state's chronic budget shortfalls.

Much of the debate has been driven by a bipartisan Fiscal Policy Caucus, which began working over the summer to find new revenue sources.

Alaska faces an $826 million budget shortfall this fiscal year that is expected to continue to grow for the next eight years to more than $1 billion.

While House lawmakers have focused on new revenue-raising measures, the more conservative Senate has taken a firm stance against new taxes.

Halford has been supportive of smaller taxes on cruise ships and an increase in the state's alcohol tax, but has been against any broad-based taxes this year.

The House plan includes a measure to use $300 million in permanent fund earnings next year to close the state's budget gap.

In subsequent years, it divides a five-year average of the fund's market value between dividends and government. It would raise about $657 million for state coffers in fiscal 2004, and slightly more in future years.

The House also approved a compromise $250 million income tax intended to emulate what Alaskans would have paid under a 3 percent sales tax favored by some Republicans earlier this session.

All Alaskans who file a federal income tax would have to pay the tax, and wealthy residents would pay a smaller percentage of their income than the middle class.

For example, a person with an annual income of $24,791 would pay about $467 in taxes, which is about a 1.88 percent rate, while someone with an annual income of $283,772 would pay $3,951, a 1.39 percent rate.

The House plan also includes a 7-cent increase in the state's alcohol tax, which would generally raise it to a dime per drink. That's one proposal that has support in the Senate, Halford said.

If it were passed, the income tax and permanent fund plans would provide about $900 million to state coffers in the first full year of collection.

Gov. Tony Knowles had proposed lawmakers enact a $350 million income tax plan along with other tax measures to begin closing the fiscal gap. Knowles took an active part in negotiations for the House plan after it appeared to have stalled in the House last week.

Knowles' spokesman Bob King said it is now the Senate's turn to propose a way to close the so-called ''fiscal gap.''

''The fiscal gap is one of the major issues facing the state of Alaska right now and he's calling on the Senate to debate this ... take a vote and let the people know exactly where they stand,'' King said.

North Slope Oil -- which constitutes about 80 percent of the state's revenues -- has declined by half since its peak production of 2 million barrels in 1988.

Meanwhile, the state's Constitutional Budget Reserve of $2.4 billion is anticipated to run dry in October 2004. The Legislature has used that fund to make up for past budget shortfalls.

The fund is fueled by royalty settlements, but the Knowles administration has said there are no major settlements left on the horizon to replenish its balance.

A recurring theme in debate on the House floor Thursday was that the state can no longer afford to provide services to Alaskans at no cost.

But Senate Finance Co-Chairman Pete Kelly, R-Fairbanks, said those arguments have been made in 1987, 1989 and again in 1999 when the state faced similar deficits.

Each time, the state's fiscal picture improved before lawmakers took action, Kelly said. Lawmakers should not consider passing broad-based taxes this session while the state's reserve account eclipses the proposed $2.2 billion general fund, Kelly said.

While Halford is opposed to using permanent fund earnings, Kelly said he would support such a move after the state's budget reserve is exhausted.

Senate Republicans want the House to approve a constitutional amendment to cap state spending and limit the growth of government. If approved, the measure would be on the ballot in November.

''Most states facing a deficit are reducing spending. The proposals here are to take out of savings,'' Kelly said.